India opens up investment options for Russia

Context

India and Russia have been working on a rupee payment system to bypass Western sanctions since Russia’s invasion of Ukraine in February 2022. The system allows Russian banks to open rupee vostro accounts with authorised dealer banks in India, enabling rupee trade between the two countries. However, due to various reasons, the rupee-rouble mechanism could not take off. India has now opened up investment options for Russia to channel its rupee balance, allowing Russian entities to invest in government securities, bonds, equity, and loans.

Increasing Bilateral Trade Between India and Russia

• Indo-Russian bilateral trade has witnessed a substantial upsurge; Russia having become India’s second largest import resort, amidst all, just after China.
• Pakistan ranked in the 15th place in the import from Russia, while it is in the 9th place in the export to Russia. 95% to $61. GDP has stood at 38 billion in 2023-24, but this is surpassed by exports of $4. Trade imbalances have reached $57 billion per year, with a deficit on trade flows to the states of $26 billion. 18 billion.
• It is oil, which accounts for most of India’s imports from Russia, but it is not just the oil. Rather it is the import of defence equipment, fertilisers, edible fats, and precious and semi precious stones and jewellery.

Payment Issues Faced by India and Russia

• The West’s financial sanctions on Russia sentiment has the SWIFT blocking multiple Russian banks from accessing the international banking traffic.
• Such had only compounded their difficulties in sending money to India as dollars and also the SWIFT channels were not the option.
• The rupee-rouble mechanism was conceived as a separate channel of payments, but it had issues like that there were not only doubts about access to currencies on rupee-rouble exchange but also the unexpected fall in oil trade between India and Russia.

New Investment Options for Russia

• To deal with the de-offshoring issue, India offers new avenues for investments for Russia to flow its rupee surplus.
• India’s RBI (Reserve Bank of India) has given the right to certain countries to be deputy holders of rupee accounts which allow them to trade in the country’s government securities and treasury bills.
• Also Russia gets an opportunity to move ahead in equity and debt, while India is considering Russian entities for investment purposes, including the plan to enhance the Vande Bharat sleeper trains.

Establishment of Rupee Payment System

• The launch of the rupee payment system is one of the strategies India has resorted to in order to prove that it can exercise its economic sovereignty after a Western-based orchestrated sanction regime was imposed in the wake of the Ukraine situation.
• The system provides rubble for ruble trading between India and Russia that can be used to avoid sanctions imposed by the West.
• The rupee payment system becomes a key milestone for economic cooperation between India and Russia and is an integral part of their bilateral trade relations. It is hoped that it would be a positive factor in improving their economic ties.

Conclusion

India and Russia have been working on a rupee payment system to bypass Western sanctions, and India has now opened up investment options for Russia to channel its rupee balance. The increasing bilateral trade between India and Russia, payment issues faced by India and Russia, and the new investment options for Russia are significant developments in their economic ties. The establishment of the rupee payment system showcases India’s strategic autonomy in bypassing Western sanctions post-Ukraine conflict.

Source: Businessline

UPSC Mains Practice Question

Q. Discuss the potential impacts and strategic implications of India’s decision to open up investment options for Russia, considering the geopolitical dynamics and economic interests of both nations.

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